Obama Makes Budget Gamble

President Barack Obama will seek to persuade Republicans to warm to a proposal to embrace more short-term spending.
ZUMAPRESS.com

By

Damian Paletta

Updated April 10, 2013 7:23 p.m. ET

ENLARGE

WASHINGTON—President Barack Obama took a political gamble Wednesday by proposing to curb the growth of Social Security and Medicare, hopeful that the concessions would draw rank-and-file Senate Republicans into a budget deal that has so far proven elusive.

The offer came in the White House's $3.778 trillion spending plan for the year that begins in October, which called for about $1 trillion in tax increases over 10 years and higher spending on programs such as education, transportation and mental-health services.

Congressional Republican leaders mostly dismissed the package and described it as a nonstarter because of proposed tax increases. But other Republicans said it contained measures that could show promise.

While the nearly 2,500-page budget package is stuffed with different proposals, including higher taxes on cigarettes and spending on climate-change research, there are a handful of items the White House hopes could be the seeds of a broad deficit-reduction deal later this year.

President Obama held a press conference in the White House Rose Garden to announce his budget plan for the 2014 fiscal year.

These include slowing the growth of spending on programs such as Social Security by $130 billion over 10 years by using a different inflation measure for calculating annual cost-of-living increases, and making $370 billion in changes to Medicare through cuts to providers and raising certain fees and premiums. Many Democrats have long objected to cutting future benefits or spending on these programs, and adding them to the White House's budget infuriated liberals and labor unions.

But the president offered no apologies. "I am willing to make tough choices that may not be popular within my own party, because there can be no sacred cows for either party," Mr. Obama said Wednesday. At the same time, he said his offer to slow entitlement growth was conditioned on lawmakers agreeing to higher taxes, such as new limits on tax breaks claimed by wealthier Americans—something GOP leaders have recently said they won't accept.

Since 2011, the White House and Congress have already agreed to roughly $2.5 trillion in deficit reductions over 10 years through a combination of spending cuts and tax increases. Many Republicans say much more needs to be done, but White House officials say their new budget would bring the total deficit reduction to more than $4 trillion over 10 years.

House Republicans and Senate Democrats already have passed budget resolutions, meaning the long-delayed White House proposal can be viewed as a political document aimed at influencing deficit-reduction discussions.

House Budget Committee Chairman Paul Ryan (R., Wis.) said he saw little "common ground" in a plan that raised taxes, increased spending and made "minuscule" deficit reductions. "We had hoped the president would have done something larger than this, bigger than this, for the beginning of his second term," he said.

WSJ reporter Janet Hook explains why the Obama budget is arriving so late, and looks at whether there is any realistic hope Democrats and Republicans will find common fiscal ground.

Mr. Obama and 12 GOP senators dined at the White House Wednesday evening to discuss these and other issues, the second such gathering in recent weeks that administration officials hope will help build trust between the two parties and lead to further talks.

After the meal—which lasted nearly three hours and included green salad, steak and sautéed vegetables—a White House official said the president had enjoyed a constructive, wide-ranging discussion on topics including the deficit, immigration and gun violence.

Sen. Johnny Isakson, (R., Ga.), in a statement after the dinner, said it "was very productive…Sitting down to talk about how to get our arms around our debt is a good first step to what I hope will be an ongoing discussion and a path forward to solving our nation's problems."

The two sides have been locked in on-again, off-again budget talks since 2011, and the negotiations have routinely broken down or led to piecemeal deals. Now, both the White House and Republicans are pursuing different strategies. The White House is trying to work around, instead of with, Republican leaders such as House Speaker John Boehner (R., Ohio) and Senate Minority Leader Mitch McConnell (R., Ky.).

Many Republicans, meanwhile, have rallied behind Mr. Ryan's plan—viewed as a nonstarter by Senate Democrats—that he says would eliminate the deficit in 10 years by overhauling Medicare and Medicaid and cutting deeply into domestic spending. They also want to return to the traditional budget process that could lead to negotiations between the House and Senate, potentially limiting White House involvement.

The talks have entered a slow phase, in part because policy makers don't face an immediate deadline. That could change this summer when the Treasury Department bumps up against the debt ceiling, potentially running out of money to pay the government's bills.

The White House budget proposal is structured in a way that would ramp up spending sharply in the next few years, which administration officials said would spur job growth, while locking in future spending cuts to lower the deficit. This would be done in part by rolling back across-the-board spending cuts known as the sequester, replacing them with tax increases and spending cuts, primarily later in the decade.

The government's budget deficit—the gap between revenue and spending—spiked during the economic downturn and now is shrinking, though it remains large by historic standards. The Treasury Department said Wednesday the deficit was $600.48 billion for the first six months of current fiscal year, down from $778.98 billion during the same period a year earlier, boosted by higher payroll taxes, among other things.

The Congressional Budget Office estimated the deficit this fiscal year would be $845 billion. The White House estimates its plan would shrink it to $744 billion in 2014, while Mr. Ryan says his budget would lower it to $467 billion next year.

The deficit, as a share of the nation's gross domestic product, would fall to 3.2% in 2015 from 7.0% in 2012, and eventually hit 1.7% in 2023, according to the White House. Mr. Ryan's House budget resolution calls for reducing the deficit much more sharply, lowering it to 0.7% in 2015 and then eliminating it entirely in 2023.The Obama budget would raise total tax revenue to its highest level as a share of the economy since the Clinton administration. Limiting the value of tax breaks would bring in $583 billion over 10 years, the White House projected.

The administration plan would allow the federal debt, as a share of the economy, to grow to 78.2% in 2014, up from 72.6% in 2012. Under the White House proposal, this ratio would fall slowly to 73.0% by 2023, according to the White House, while Mr. Ryan's plan would bring it to 54.8% by 2023.

With federal debt rising and interest rates projected to rise, the White House projected the government's interest payments would rise from $222 billion in 2013 to $804 billion in 2023.

—Janet Hook and Kristina Peterson contributed to this article.

Corrections & Amplifications The White House is proposing about $370 billion in Medicare spending cuts over 10 years. An earlier version of this article incorrectly listed the amount as being $270 billion.

This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit www.djreprints.com.